When shopping for a mortgage, getting the best rates should be at the top of your list. You are making a huge financial commitment, and trying to get the best mortgage is bound to be confusing and frustrating for a first-time homebuyer. The best way to ensure that you get the best deal is through comparison-shopping. It is important to speak to several lenders during the mortgage process. Hiring a mortgage broker to help you through the process can prove to be invaluable. Following are some important questions that you need to ask yourself when choosing the right mortgage.
Fixed or adjustable rate mortgage?
When choosing a mortgage, you need to decide between fixed or adjustable rate. A fixed rate mortgage locks the borrower into paying a consistent interest rate over the lifespan of the loan. If you choose this option, the amount of your mortgage payment towards the principal and interest will remain constant for the term of the loan, although taxes, insurance and other loan costs may fluctuate during the period. With an adjustable rate mortgage (ARM), the interest charged fluctuates over the duration of the loan. An ARM offers a lower introductory rate, but you need to consider whether you are comfortable with your monthly payments going up or increasing over the years.
Should you pay for mortgage points?
If you are wondering whether you should pay mortgage points and how the points affect your mortgage, you need to understand what they are. When you understand the points, examine your finances to determine whether to buy the points. A point is a fee paid upfront to lower the interest rate by a specific or fixed amount. The point is 1% of the total loan amount. There are two types of mortgage points: discount and origination points. A discount point is a part of the interest that is paid at closing, while an origination point is a fee paid to the lender as compensation for loan processing and approval. Consider how long you will stay in the home when choosing whether to pay points.
What should you expect to pay as closing costs?
The closing costs can add substantially to your mortgage amount and you need to know how much you can expect to pay when shopping for a loan. The closing costs will usually be about 3% of the cost or purchase price of the home. These costs are paid during closing or when you finalize the home purchase process. The closing costs are usually made up of different fees charged by the lenders and they differ depending on the lender you choose. The costs include title insurance fees, underwriting and processing charges and appraisal costs among others. When you receive the estimate, find out about the fees.
Determine if you qualify for a special program
Before you determine the best mortgage, you need to check into any available special programs that you may qualify for. You may be eligible for programs that will make the purchase process less costly. Some first-time homebuyer programs can be very useful as they offer much needed assistance. Talk to a mortgage broker, find out the programs available and find out the best ways to benefit from them. There are websites that provide information about the different special programs.
How much can you afford to put down?
When buying a home, the lower the down payment you pay, the more you will pay in interest rates. This means that your down payment will determine how much your mortgage will cost you. To avoid paying a higher loan balance, try to increase the down payment amount. The recommended price down is 20% but there are lenders that will allow 5%. There are special programs that allow homebuyers to achieve their dreams with zero down but these usually require mortgage insurance, which adds to the overall cost. Putting down as much as you can will serve you better in the end.
What should you look out for when shopping for mortgage?
It is important to realize that lenders vary greatly when it comes to what they require from borrowers. Remember, lenders are out to protect their investment and they will often require borrowers to get insurance. Private mortgage insurance or flood insurance will often be a requirement especially for borrowers who come up with a down payment of less than 20%. Find out about additional costs that can increase your mortgage substantially. Understanding the terms of the loan is essential before you commit to the mortgage.
It is very important to get expert help especially if this is your first purchase. Mortgage experts will give you information and assistance that will ensure that you choose a mortgage that is right for you. Relying purely on the lenders recommended by your realtor may not be a smart move. A mortgage broker will have a list of different lenders you can access, making it easier to comparison-shop.